5 step checklist for GST compliance in Indian Startups

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Any country depends heavily on its taxation system. In India, taxation has always been crucial. The Goods and Services tax, brought into action just 6 years earlier impacted the taxation system like no other. This tax was imposed on any supply of goods and services. It serves as a one-time total tax, replacing the different individual taxes prevalent before it such as purchase tax, central excise duty tax, central sales tax, and many more. 

There are a set of GST rules to follow to resume operations legally for any business in India. These are called GST compliance. Such as any electrical shop say “Global Electronics” need to follow the GST norms as per their product codes, to be by the law. Thus, in this blog, we discuss these compliances of GST for companies in the form of a 5 step checklist.

What Does GST Entail

GST or Goods and Services Tax is a replacement for multiple taxes prevalent in the pre-GST era. It functions indirectly and applies to any value addition to a business. Intra-state transactions are charged by both Central GST and State GST. 

Below are some of the objectives of GST which are represented in a flow chart:
 

1. Reduced Tax Variations

This is one of the main benefits of GST. It sums up the taxation ways into a single one. Earlier, taxpayers had to deal with different types of taxes which resulted in meeting the requirements of one tax system against the others. GST on the other hand conducted a smooth compilation of value additions during all the processes in a business. This facilitated the collection of input tax credits in terms of both goods and services.

2. Lower Evasion of Taxes

Tax evasion is a big problem in the Indian taxation landscape. Showing false sale information, fake invoices, and escaping billings, are common ways by which many businesses escape taxes. However, with GST rules, an input credit on tax can only be availed by taxpayers when invoices from suppliers are uploaded on the GST portal. This hinders the process of making fake invoices to a great extent. Moreover, since the system of GST is centralized, tracking down defaulters is a lot easier than earlier.

3. Online Taxation Process

Earlier the taxation process involved a lot of offline work. Though the filing of returns was done online, the taxpayers had to face a lot of problems with different tax authorities. With the advent of the Goods and Services Tax, almost all of the work started taking place online. Any task, from return filing to bill generation, was available online. This enhanced the ease of doing business in the country.

Understanding the GST Working Model

Want to know how GST works? So let us get into the specific working model of GST. Before proceeding, we must learn about a few terms that revolve around GST.
 

GST Rates: All goods and services in businesses follow a four-tier GST taxation model. The amount of GST that is to be imposed depends on this structure. This structure includes 5, 12, 18, and 28 percent respectively. Also, there are some exceptional goods and services on which GST is not imposed.

Input Tax Credit: For a simpler understanding, the input tax credit is like a discount in GST. It is the amount businesses spend on inputs that are offset from the output tax amount on goods and services. For example, say a taxpayer has paid an input tax of Rs 10,000 on a total output tax of Rs 50,000. Then, the net GST liability of the taxpayer would be Output tax - Input tax, i.e. Rs 40,000. However, this is only feasible when the invoices are genuine and correspond to the amounts.

Now we will learn about the components of GST. This will help us understand better how GST works.

• GST is divided into three components: Integrated GST (IGST), Central GST (CGST), and State GST (SGST). A GST that is controlled from the center is the CGST, while a GST that is controlled from a particular state is the SGST. Transactions that occur within a state need to comply with both CGST and SGST. However, inter-state transactions require IGST compliance.
• Finally, we see how GST is charged. The supply chain of goods and services in the market has various components associated with it. This starts from the manufacturer and ends at the consumer. The process can be better understood with the help of the above flow chart.
• Value addition is an important factor in determining GST amounts. Value addition happens when the value of two or more fundamental blocks or say ingredients combine to create a product of higher value. For example, metals and plastic have their values, but when they are combined to create, say a smartphone, their value adds and increases altogether. These additions in the value of the product in each step till reaching the customer are imposed by GST.

Is GST necessary for small businesses?

The GST model is efficient and flexible. This is why it can be applied to a wide range of businesses across the country. However, is it the same for small shops such as a tea stall and small services such as rickshaw pullers? 

The question, “Is GST necessary for small business?” is a hot topic. To get a better hold on the answer, we must see the criteria a business must have to be eligible for GST. Thus, the applicability of GST in india is:

• For a business that supplies goods or services over Rs 20 lakh in value in one financial year, GST registration is necessary. This means, GST is required for a turnover exceeding Rs 20 lakh (this threshold is Rs 10 lakh in some states).
• Any business that is involved in inter-state transactions of goods and services.
• Any resident or non-resident of India who is a taxable person.
• Farmers are not required to pay GST.
• Any person who supplies non-taxable goods and/or services are not required to pay GST.

These were some of the criteria that determine the applicability of GST in india. Thus, for the question “Is GST necessary for small business?”, the answer depends on the financials of the business. The value and turnover of the business is the determining factor. The examples we took of tea stalls and rickshaw pullers often do not have such turnover value. Thus, they are not eligible to pay the Goods and Services Tax.

The Essence of GST Compliance

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GST compliance is a set of rules that taxpayers must satisfy within a specified interval of time. Not being able to do so, charges taxpayers with compensation. Moreover, the GST tax department has also taken steps toward easier abiding by such compliances. 

The offenses that fall upon taxpayers for non-compliance stand for 21 activities that are enlisted in the GST norms. These compliances span across various components of the GST process such as Registration, return filing for GST, and invoice structures.
 

5-Step Checklist for GST Compliance

We will now go through a 5-step GST compliance. These checklists make complying with GST easier for taxpayers. 

Following up on these checklists helps taxpayers avoid any fines or penalties for non-compliance with GST rules. 

1. Compliance for Registration

Registration for GST is not compulsory for all businesses (especially the smaller ones). There is a minimum threshold to meet before being eligible for GST. This GST compliance for registration is based on the turnover of the business. Any business with a turnover exceeding Rs 40 lakh in goods and Rs 20 lakh in services has to register for GST. This is the minimum requirement to function as a GST-registered supplier.
 

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2. Compliance related to invoices

A tax invoice is essential to make output tax and avail input tax credits. However, without meeting the compliances related to invoices properly, there will be repercussions. The details that any dealer must be compliant within their tax invoices are:

• The invoice number and the date of issuing.
• Name of the customer
• Address where the supply took place (shipping and billing).
• Registered GSTIN (if any)
• HSN or SAC codes
• Complete details of the transaction (item name, quantity, Rate, Total value)
• Discounts (if any)
• Tax values 
• Supplier’s signature and stamp (in any)

These details related to invoices are essential to be met to stay compliant with the GST norms.

3. Compliance on returns

Returns are the most important part of the GST process. Without filing returns properly, the taxable value will not reach the tax department and then will result in non-compliance. Businesses that have an annual turnover exceeding Rs 5 crore are required to complete two return filing procedures in one month. 

This equates to a total of 24 return filings annually for such companies. There are a total of 13 different GST returns. All of them are not applicable to all taxpayers. Taxpayers are assigned the type of return according to their types. Returns are filed annually, quarterly or even monthly. When a taxpayer fails to file a return in time, the business is fined and penalized with each day after the deadline.

4. E-way Bills

E-way bills is the centralization of the billing system by the Government. This initiative aims at organizing the intra-state supply of goods. E-way bill which stands for electronic bills enable suppliers to generate the bills on a central portal which eases the GST billing process. This billing system can be used by manufacturers, traders, and transporters. Moreover, for the tax department, it becomes very easy to keep records of the billings which also helps in identifying any tax evasion.
 

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5. E-invoicing

The e-invoicing compliance is not for all. Initially, it was necessary for big businesses that have an annual turnover exceeding Rs 500 crore. However, in 2021, this turnover threshold was reduced to Rs 100 crore. Such businesses have an invoice reference number that is unique and which they must upload on the GST invoice portal for any business-to-business invoice generation. Then, the invoice is checked and verified for genuineness on the invoice portal. Finally, it gets authorized via a digital signature and a QR code.

E-invoicing greatly reduces the number of data entry errors that are common in invoices related to big transactions. It aims to direct the transfer of information to the GST invoice portal without any third party involved. 

Thus, this is what the 5-step GST compliance checklist looks like. The applicability of GST in India and its compliances is turnover-specific. However, if a business meets the registration compliance criteria, it is important for such businesses to follow the points in the checklist that apply to them to avoid non-compliance compensations.

As GST resumes its operations as of now, it is functioning and evolving in a much better way. Many new facilities and compliances are innovated and introduced that promote the ease of doing business. GST rules are continuously reforming the business life of people and the way of taxing goods and services in the country. Thus, it is highly important to learn about GST and its compliance for every individual involved in the business world. 

Bottomline

The five step GST compliance checklist presented in the blog talks briefly about most of such compliances. Businesses are meant to understand and keep check of their GST status for their smooth conduction.

Though it's easy to say, it's harder to do. Businesses often find these compliances very complex and difficult to understand. This creates problems for the business and increases the risk of non-compliance and heavy compensation. In such a situation, it is completely justified to seek help. Filing Buddy is a name that takes responsibility for your taxation, registration, and compliance needs. 

Filing Buddy helps businesses focus on their growth by taking care of all such external nuisances in an organized way. Helping various businesses make the most of our services, entrust our experts to assist you in an efficient manner. Why wait? visit our page and start registering now.